UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- --- EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-2745
SOUTHERN NATURAL GAS COMPANY
(Exact name of registrant as specified in its charter)
DELAWARE 63-0196650
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
AMSOUTH-SONAT TOWER
BIRMINGHAM, ALABAMA 35203
(Address of principal executive offices) (Zip Code)
Registrant's telephone number: (205) 325-7410
NO CHANGE
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No _
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
COMMON STOCK, $3.75 PAR VALUE:
1,000 SHARES OUTSTANDING ON APRIL 30, 1999
REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION
H(1) (a) AND (b) OF FORM 10-Q AND IS THEREFORE FILING THIS FORM WITH
THE REDUCED DISCLOSURE FORMAT.
<PAGE>
SOUTHERN NATURAL GAS COMPANY AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page No.
PART I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
(Unaudited)--March 31, 1999 and
<S> <C>
December 31, 1998 1
Condensed Consolidated Statements of Income
(Unaudited)--Three Months Ended
March 31, 1999 and 1998 2
Condensed Consolidated Statements of Cash Flows
(Unaudited)--Three Months Ended
March 31, 1999 and 1998 3
Notes to Condensed Consolidated Financial
Statements 4 - 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 7 - 12
Item 3. Quantitative and Qualitative Disclosure About
Market Risk 13
PART II. Other Information
Item 5. Legal Proceedings 14
Item 6. Exhibits and Reports on Form 8-K 14
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
SOUTHERN NATURAL GAS COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
(In Thousands)
ASSETS
Current Assets:
<S> <C> <C>
Cash $ 72 $ 107
Notes receivable from affiliates 55,737 67,329
Accounts receivable 71,977 72,692
Inventories 20,187 20,190
Gas imbalance receivables 8,423 5,675
Other 6,316 232
---------- ----------
Total Current Assets 162,712 166,225
---------- ----------
Investments in Unconsolidated Affiliates and Other 167,097 154,743
---------- ----------
Plant, Property and Equipment 2,691,286 2,672,225
Less accumulated depreciation and amortization 1,541,114 1,533,990
---------- ----------
1,150,172 1,138,235
---------- ----------
Deferred Charges and Other 108,386 106,924
---------- ----------
$1,588,367 $1,566,127
========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities:
Long-term debt due within one year $ - $ 5,000
Accounts payable 18,116 25,463
Accrued income taxes 11,489 3,123
Other accrued taxes 1,334 4,782
Accrued interest 21,876 23,688
Gas imbalance payables 8,673 9,231
Other 13,322 11,082
---------- ----------
Total Current Liabilities 74,810 82,369
---------- ----------
Long-Term Debt 500,000 500,000
---------- ----------
Deferred Credits and Other:
Deferred income taxes 172,026 164,482
Other 54,372 57,531
---------- ----------
226,398 222,013
---------- ----------
Commitments and Contingencies
Stockholder's Equity:
Common stock and other capital 79,722 79,722
Retained earnings 707,437 682,023
---------- ----------
Total Stockholder's Equity 787,159 761,745
---------- ----------
$1,588,367 $1,566,127
========== ==========
</TABLE>
See accompanying notes.
<PAGE>
SOUTHERN NATURAL GAS COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months
Ended March 31,
1999 1998
(In Thousands)
Revenues:
<S> <C> <C>
Transportation and storage $ 96,632 $ 95,090
Other 4,072 10,411
-------- --------
100,704 105,501
-------- --------
Costs and Expenses:
Operating and maintenance 19,533 19,558
General and administrative 15,569 15,472
Depreciation and amortization 13,998 5,491
Taxes, other than income 5,956 5,349
-------- --------
55,056 45,870
-------- --------
Operating Income 45,648 59,631
-------- --------
Other Income, Net:
Equity in earnings of unconsolidated affiliates 2,425 4,125
Other, net 1,874 653
-------- --------
4,299 4,778
-------- --------
Earnings Before Interest and Taxes 49,947 64,409
-------- --------
Interest:
Interest income 1,023 1,399
Interest expense (10,072) (9,066)
Interest capitalized 483 473
-------- --------
(8,566) (7,194)
-------- --------
Income Before Income Taxes 41,381 57,215
Income Tax Expense 15,967 21,999
-------- --------
Net Income $ 25,414 $ 35,216
======== ========
</TABLE>
See accompanying notes.
<PAGE>
SOUTHERN NATURAL GAS COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months
Ended March 31,
1999 1998
(In Thousands)
Cash Flows from Operating Activities:
<S> <C> <C>
Net income $ 25,414 $ 35,216
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 13,998 5,491
Deferred income taxes 7,544 9,500
Equity in earnings of unconsolidated
affiliates, less distributions (2,425) (4,125)
Reserves for regulatory matters 194 (4,046)
Gas supply realignment costs (1,832) 353
Change in:
Accounts receivable 715 9,520
Accounts payable (7,347) (25,667)
Accrued interest and income taxes, net 6,554 10,277
Other current assets and liabilities (10,595) (5,590)
Other (9,307) (3,278)
-------- --------
Net cash provided by operating activities 22,913 27,651
-------- --------
Cash Flows from Investing Activities:
Plant, property and equipment additions (20,069) (25,619)
Notes receivable, primarily from affiliates 11,592 20,802
Proceeds from disposal of assets and other (9,471) (15,344)
-------- --------
Net cash used in investing activities (17,948) (20,161)
-------- --------
Cash Flows from Financing Activities:
Payments of long-term debt (5,000) (6,220)
-------- --------
Net cash used in financing activities (5,000) (6,220)
-------- --------
Net Increase (Decrease) in Cash (35) 1,270
Cash at Beginning of Year 107 2,905
-------- --------
Cash at End of Period $ 72 $ 4,175
======== ========
Supplemental Disclosures of Cash Flow Information
Cash Paid for:
Interest (net of amount capitalized) $ 8,378 $ 8,795
Income taxes, net 57 1,321
</TABLE>
See accompanying notes.
<PAGE>
SOUTHERN NATURAL GAS COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
Southern Natural Gas Company is a wholly owned subsidiary of Sonat Inc.
The accompanying condensed consolidated financial statements of Southern
Natural Gas and its subsidiaries (Southern) have been prepared in accordance
with the instructions to Form 10-Q and include the information and footnotes
required by such instructions. In the opinion of management, all adjustments,
including those of a normal recurring nature, have been made that are necessary
for a fair presentation of the results for the interim periods presented herein.
2. Unconsolidated Affiliates
Southern Natural Gas owns a one-third interest in Destin Pipeline
Company, L.L.C. (Destin) and a subsidiary of Southern Natural Gas owns 50
percent of Bear Creek Storage Company (Bear Creek).
The following is summarized income statement information for Bear Creek.
No provision for income taxes has been included since its income taxes are paid
directly by the joint-venture participants.
Three Months
Ended March 31,
1999 1998
(In Thousands)
Revenues $9,083 $9,029
Expenses:
Operating expenses 1,211 2,301
Depreciation 1,362 1,359
Other expenses, net 985 1,192
------ ------
Income Reported $5,525 $4,177
====== ======
The following is summarized results of operations for Destin. No
provision for income taxes has been included since its income taxes are paid
directly by joint venture participants.
Three Months
Ended March 31,
1999 1998
(In Thousands)
Revenues $ 3,833 $ 1,872
Expenses:
Operating expenses 1,625 -
Depreciation and amortization 1,586 -
Interest and other 1,755 (4,307)
------- -------
Income (Loss) Reported $(1,133) $ 6,179
======= =======
3. Debt and Notes To and From Affiliates
As part of Sonat's cash management program, Southern can either loan
funds to or borrow funds from Sonat. Notes receivable and payable are in the
form of demand notes with rates reflecting Sonat's return on funds loaned to its
subsidiaries, average short-term investment rates and cost of borrowed funds. In
certain circumstances, these notes are subordinated in right of payment to
amounts payable by Sonat under certain long-term credit agreements.
At March 31, 1999, Southern had available short-term lines of credit of
$50.0 million available through May 31, 1999. Borrowings are available for a
period of not more than 364 days and are in the form of unsecured promissory
notes that bear interest at rates based on the banks' prevailing prime,
international or money-market lending rates. At March 31, 1999, no amounts were
outstanding.
<PAGE>
4. Rate Matters and Contingencies
Periodically, Southern makes general rate filings with the FERC to
provide for the recovery of cost of service and a return on equity. The FERC
normally allows the filed rates to become effective, subject to refund, until it
rules on the approved level of rates. Southern provides reserves relating to
such amounts collected subject to refund, as appropriate, and makes refunds upon
establishment of the final rates. At March 31, 1999, Southern's rates are
established by a settlement that was approved by FERC orders issued in 1995 and
1996. All of its customers are parties to the settlement, and all revenue is
based on the final settlement rates and therefore is not being collected subject
to refund.
SFAS No. 71, Accounting for the Effects of Certain Types of Regulation,
provides that rate-regulated entities account for and report assets and
liabilities consistent with the economic effect of the way in which regulators
establish rates, if the rates established are designed to recover costs of
providing the regulated service and if the competitive environment makes it
reasonable to assume such rates can be charged and collected. Certain expenses
and credits subject to rate determination normally reflected in income are
deferred in the balance sheet and are recognized in income as the related
amounts are included in service rates and recovered from or refunded to
customers. Information regarding Southern's regulatory assets and liabilities is
shown below:
March 31, December 31,
1999 1998
(In Thousands)
Regulatory Assets:
SFAS No. 109 Tax Gross-Up $24,160 $23,319
Unrecovered Depreciation, 14,076 14,053
Work Force Reduction 4,974 5,574
Charitable Donation 6,769 6,994
Cash Out Differential 2,291 4,511
Other 6,217 6,987
------- -------
$58,487 $61,438
======= =======
Regulatory Liabilities:
Excess Deferred Taxes Due Customers $ 3,346 $ 3,735
======= =======
SFAS No. 109 tax gross-up is recorded pursuant to FERC policies allowing
future recovery of taxes associated with the allowance for funds used during
construction (AFUDC). Unrecovered depreciation represents amounts to be
recovered in future rates pursuant to a 1992 FERC settlement. Cash out
differential represents the amount of price differential cost associated with
storage transactions recoverable pursuant to Southern's customer settlement.
Excess deferred tax due customers represents amounts due customers pursuant to
federal tax rate normalization.
5. Subsequent Event
On March 13, 1999, Sonat Inc., and El Paso Corporation (El Paso) entered
into an Agreement and Plan of Merger, as amended (the Merger Agreement),
providing for, among other things, the merger of El Paso and Sonat. Under the
terms of the Merger Agreement, Sonat's shareholders will receive one share of El
Paso common stock for each share of common stock of Sonat they own. The merger
is subject to certain customary conditions, including, among others, approval by
the stockholders of Sonat and receipt of certain required government approvals.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
RESULTS OF OPERATIONS
The principal business of Southern Natural Gas Company and its
subsidiaries (Southern) is the transmission and storage of natural gas in
interstate commerce in the southeastern United States. Southern is actively
pursuing opportunities to expand its pipeline system in its traditional market
areas and to connect new gas supplies.
Units of Shell Oil Company (Shell) and BP Amoco Corporation (BP Amoco)
are equal partners with Southern in the ownership of Destin Pipeline Company
L.L.C. (Destin). Destin owns a 223-mile, 1 billion cubic feet per day interstate
pipeline system that transports natural gas from the growing eastern Gulf of
Mexico production area, which was placed fully in service in March 1999. An
additional 31-mile extension is scheduled to go in service in the second quarter
of 1999.
Construction is progressing on Southern's expansion project to North
Alabama. The 122-mile, 78 million-cubic-foot-per-day expansion is expected to be
in service early in 2000.
On March 3, 1999, Carolina Power & Light Company (CP&L) and Southern
announced plans to form a 50/50 joint venture to construct, own, and operate a
180-mile, 30-inch, natural gas pipeline from the terminus of Southern's pipeline
system in Aiken, South Carolina, to an interconnect with the pipeline system of
North Carolina Natural Gas Corporation in Robeson County, North Carolina. The
new Palmetto Interstate Pipeline (Palmetto) will provide a significant
interstate natural gas pipeline connection in eastern North Carolina.
Palmetto has a planned initial capacity of 200 million to 300 million
cubic feet of natural gas per day and will be expanded to accommodate future
growth. CP&L plans to subscribe for a substantial portion of the capacity in
Palmetto to fuel new electric generation being developed for its customers in
the Carolinas, with the remainder to be used to increase the region's natural
gas availability. An open season began April 1, 1999, for customers to subscribe
to firm capacity on the pipeline and will conclude on May 31, 1999. Depending
upon the resulting firm subscription, the capital cost for Palmetto is expected
to be $200 million to $250 million.
The proposed schedule calls for the new pipeline to be operational in
April 2002. Construction is scheduled to begin in the summer of 2001, following
the completion of engineering and environmental preparation and federal and
state permitting. The exact route of the pipeline has not yet been determined. A
detailed environmental analysis is under way to establish the most
environmentally sound path.
<PAGE>
As part of the project Southern expects to undertake a major expansion
of its existing interstate pipeline system, consisting of extensive pipeline
looping and additional compression at points from Mississippi to Aiken. The
extent of Southern's pipeline expansion will depend on capacity requirements and
the extent, if any, of existing capacity turned back by existing customers in an
open season for turnback expected to occur in the second or third quarter of
1999. The maximum costs expected to be incurred by Southern for its expansion
are estimated at $430 million. This expansion will provide significant rate and
operational benefits to Southern's existing customers.
The construction of Palmetto and expansion of the Southern system
require approval by the FERC as well as other federal and state agencies and is
likely to be challenged on both environmental grounds and economic grounds by
certain of its competitors, environmental groups, or landowners. Construction is
also subject to execution of definitive agreements between CP&L and Southern.
Operations
Three Months
Ended March 31,
1999 1998
(In Millions)
Revenues:
Market transportation and storage $ 86.2 $ 83.5
Supply transportation 10.4 11.6
Other 4.1 10.4
------ ------
Total Revenues 100.7 105.5
------ ------
Costs and Expenses:
Operating and maintenance 19.5 19.6
General and administrative 15.6 15.5
Depreciation and amortization 14.0 5.5
Taxes, other than income 6.0 5.3
------ ------
55.1 45.9
------ ------
Operating Income 45.6 59.6
------ ------
Other Income:
Equity in earnings of
unconsolidated affiliates 2.4 4.1
Other 1.9 .7
------ ------
4.3 4.8
------ ------
Earnings Before Interest and Taxes $ 49.9 $ 64.4
====== ======
(Billion Cubic Feet)
Volumes:
Market transportation 177 185
Supply transportation 89 95
------ ------
Total Volumes 266 280
====== ======
<PAGE>
First Quarter 1999 to First Quarter 1998 Analysis
EBIT for the first quarter of 1999 decreased $14.5 million compared with
the prior year. The decrease was primarily due to a $7.0 million pretax
adjustment of the salvage value on certain fixed assets in the 1998 period and
higher depreciation expense as a result of higher plant balances in 1999. The
1998 period also includes the recognition of a royalty reserve reversal of $4.2
million. Partially offsetting the decrease was the effect of higher market
transportation revenues due to recent expansions.
Supply transportation revenues declined due to lower volumes at Sea
Robin Pipeline Company. Equity in earnings of unconsolidated affiliates
decreased primarily due to lower earnings at Destin Pipeline as a result of a
high allowance for funds used during construction (AFUDC) capitalized in the
1998 period. Other income increased due to higher AFUDC equity and the sale of
certain facilities.
Natural Gas Sales and Supply
Sales by Southern of natural gas are anticipated to continue only until
Southern's remaining supply contracts expire, are terminated, or are assigned.
As a result of its restructuring pursuant to FERC directives in past years,
Southern terminated or renegotiated to market pricing substantially all of its
gas supply contracts through which it had historically obtained its long-term
gas supply. Pending the termination or expiration of the few remaining supply
contracts, Southern's remaining gas supply is being sold on a month-to-month
basis. Because Southern is primarily a gas transporter and does not realize
significant margins on gas sales, the net of gas sales revenues and natural gas
cost are included in other revenue.
Except for the sale of its remaining gas supply described above,
Southern's participation in gas supply activities will be limited to the
purchase and sale of gas from time to time as may be required for system
management purposes.
Southern's annual purchase commitments total less than $21 million per
year for 1999 and subsequent years. Based on Southern's current expectations
with respect to natural gas prices in 1999 and the years following, an
immaterial volume of gas is expected to be at prices above market.
Rate Matters
Under terms of a settlement approved by the FERC, all of Southern
Natural Gas' previously pending rate proceedings and proceedings to recover gas
supply realignment and other transition costs associated with the implementation
of FERC Order No. 636 were resolved. The settlement requires Southern Natural
Gas to file a new rate case no later than September 1, 1999. Southern expects
the rates filed in that rate case to become effective after normal suspension by
the FERC on March 1, 2000, subject to refund upon conclusion of the rate case.
<PAGE>
Other Income Statement Items
Three Months
Ended March 31,
1999 1998
(In Millions)
Interest Expense, Net $ 8.6 $ 7.2
Net interest expense increased in the 1999 period compared to the same
period last year due to higher average debt levels. The increase was partially
offset by a smaller provision for interest related to income taxes and the
effect of lower average interest rates in the current period.
Income Tax Expense $16.0 $22.0
Income tax expense decreased in the 1999 period compared to the 1998 period
due to lower pretax earnings.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows
Operating Activities $22.9 $27.7
Cash flow from operations decreased $4.8 million compared to 1998. The
change in depreciation is primarily due to the adjustments made in 1998 to
reflect salvage value on certain fixed assets. The change in reserves for
regulatory matters is attributable to the reversal of a reserve in 1998
originally set up for royalties on take-or-pay contract buyouts. The change in
deferred taxes is primarily attributable to the depreciation adjustment and
reserve reversal discussed above, which were all non-cash, and an increase in
plant in service. The change in accounts receivable and accounts payable
reflects the timing of intercompany settlements. The change in other current
assets reflects the payment of a 1999 insurance premium in 1999 rather than in
the previous year.
Investing Activities $(17.9) $(20.2)
Net cash used in investing activities was $2.3 million less in 1999
compared to 1998. The decrease was primarily attributable to lower investments
in Destin Pipeline in 1999 and lower capital expenditures related to Southern's
capital programs in 1999. Partially offsetting the decrease were lower
repayments to Southern Natural Gas of loans in 1999 by Southern's parent, Sonat
Inc.
Financing Activities $ (5.0) $ (6.2)
Net cash used in financing activities was lower in 1999 compared to the
1998 period due to the retirement of a capital lease in 1998.
<PAGE>
Capital Resources
At March 31, 1999, Southern Natural Gas had bank lines of credit with a
total capacity of $50.0 million, all of which was available. Southern Natural
Gas also has a shelf registration statement with the Securities and Exchange
Commission which provides for the issuance of up to $500.0 million in debt
securities of which $100.0 million has been issued.
Southern's capital expenditures and other investing requirements for
1999 are expected to total approximately $172 million. This amount reflects
investments in unconsolidated affiliates, expansions and other projects.
Southern expects to continue to use cash from operations and borrowings
in either the public or private markets or loans from affiliates to finance its
capital and other corporate expenditures.
YEAR 2000 PROJECT
The following disclosure contains forward-looking statements. The
Company's ability to meet its objectives identified below is dependent upon
several factors that could cause actual results to differ materially from those
set forth below, including the timely provision of necessary upgrades and
modifications by suppliers. In addition, the Company cannot guarantee that third
parties on whom it depends for essential services will convert their critical
systems and processes in a timely manner. Each of the phases of the Company's
Year 2000 project is progressing and the Company believes that it is taking all
reasonable and appropriate steps necessary to be able to operate in the Year
2000 and beyond.
To answer the Year 2000 challenge, the Sonat Board of Directors directed
that a corporate-wide initiative be undertaken. A consulting firm was engaged to
assist in this effort. The Company has divided its Year 2000 project into
assessment, remediation, testing, and contingency planning phases. During the
assessment phase, the Company completed a comprehensive inventory of IT systems,
embedded systems, equipment, computer hardware, and software that rely on a
computer chip as well as service providers that could be impacted by the Year
2000 problem. For vendor-supplied items, the Company has contacted its vendors
seeking written verification of Year 2000 readiness. In addition, the Company
continues to contact entities with whom it has a material relationship, such as
natural gas suppliers, pipelines, electric utilities, telecommunication service
providers, banks, and other suppliers of goods and services, to determine the
extent to which the Company is vulnerable to the failure of those third-parties
to remediate their Year 2000 issue.
<PAGE>
The Company is currently engaged in the remediation and testing phases
of the Year 2000 project. The remediation phase includes completing the
replacement of mainframe systems with Year 2000-ready vendor packages on new
client/server platforms and performing any required modifications and upgrades
identified during the assessment phase. The testing phase involves testing
systems for Year 2000 readiness. The Company has completed remediation and
testing of its critical systems. Non-critical systems are scheduled to be
remediated and tested by June 30, 1999.
The Company relies on producers of natural gas, natural gas pipelines,
natural gas distribution companies, and natural gas marketing companies.
External infrastructure, such as electric, telecommunication and water service
is also necessary for the Company's basic operations. Should any third party
with which the Company has a material relationship fail, the impact could become
a significant challenge to the Company's ability to perform its basic
operations. Due to the nature of the Company's business, contingency plans are
already in place, including plans to provide pipeline system reliability.
Because of the additional uncertainties caused by the Year 2000 problem, the
Company is developing additional contingency plans as practicable for critical
systems, service providers and business partners. A consulting firm has been
engaged to assist in this effort. These plans involve developing contingencies
for failures that may result from the Year 2000 problem, and include plans to
establish control centers to facilitate communications in the event of a
telecommunications failure and staffing at selected locations on the Company's
pipeline system. The Company is scheduled to have these plans completed by June
30, 1999.
The estimated cost to the Company of the Year 2000 project for capital
as well as general and administrative costs is expected to be less than $5
million. As of March 31, 1999, the Company has incurred approximately $1.5
million in Year 2000 project costs. The Company expects to fund Year 2000
expenditures from normal operations. The timing of expenditures is not
indicative of readiness efforts or progress to date.
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
This Quarterly Report contains certain forward-looking statements
regarding Southern's business plans and prospects, objectives, expansion
projects, proposed capital expenditures and expected performance or results.
These forward-looking statements are based on assumptions that Southern believes
are reasonable, but are subject to a wide range of risks and uncertainties and,
as a result, actual results and experience may differ materially from the
anticipated results or other expectations expressed in such forward-looking
statements. Such statements are made in reliance on the safe harbor provisions
of the Private Securities Litigation Reform Act of 1995.
Important factors that could cause actual results to differ include the
requirements to receive various governmental approvals to proceed with expansion
projects and unanticipated construction delays in connection with such projects.
Realization of Southern's objectives and expected performance can also be
adversely affected by the actions of customers and competitors, changes in
governmental regulation of Southern's businesses, and changes in general
economic conditions and the state of domestic capital markets. There can be no
assurance that Destin will be able to timely connect new fields or that the
production from those fields will allow it to meet its planned throughput
objectives.
<PAGE>
Item 3. Quantitative and Qualitative Disclosure About Market Risk
Financial instruments of Southern expose it to interest rate risk.
Southern's entire portfolio of interest rate risk instruments is classified as
non-trading.
Southern's interest income is sensitive to changes in the level of
short-term interest rates in the United States. In general, Southern Natural Gas
either loans excess funds to Sonat or repays its short-term borrowings. Excess
cash generated by or contributed to joint venture projects is invested on a
short-term basis pending distribution or expenditure on capital projects.
<PAGE>
Part II. OTHER INFORMATION
Item 5. Legal Proceedings
In United States of America ex rel. Jack J. Grynberg v. Southern Natural
Gas Company, et al., which is described in Item 3 in Part I of the Company's
Report on Form 10-K for the year ended December 31, 1998, the Justice Department
notified the courts on April 9, 1999, that it was declining to intervene in
these cases. Grynberg served his complaint on Southern and its affiliates on
April 7, 1999.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits(1)
Exhibit
Number Exhibits
12* Computation of Ratio of Earnings to Fixed Charges
27* Financial Data Schedule for the period ended March 31, 1999
- -------------
* Filed herewith
(b) Reports on Form 8-K
The Company did not file any report on Form 8-K during the quarter ended
March 31, 1999.
- -------------------
(1) The Company will furnish to requesting security holders the exhibits on
this list upon the payment of a fee of $.10 per page up to a maximum of
$5.00 per exhibit. Requests must be in writing and should be addressed
to R. David Hendrickson, Secretary, Southern Natural Gas Company, P. O.
Box 2563, Birmingham, Alabama 35202-2563.
<PAGE>
SOUTHERN NATURAL GAS COMPANY AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Southern Natural Gas Company
Date: May 12, 1999 By: /s/ Thomas W. Barker, Jr.
-------------------------- --------------------------
Thomas W. Barker, Jr.
Vice President-Finance
Date: May 12, 1999 By: /s/ Norman G. Holmes
-------------------------- ---------------------
Norman G. Holmes
Vice President & Controller
EXHIBIT 12
SOUTHERN NATURAL GAS COMPANY AND SUBSIDIARIES
Computation of Ratios of Earnings
from Continuing Operations to Fixed Charges
Total Enterprise (a)
<TABLE>
<CAPTION>
Three Months Ended March 31, Years Ended December 31,
1999 1998 1998 1997 1996 1995 1994
---- ---- ---- ---- ---- ---- ----
(In Thousands)
Earnings from Continuing Operations:
<S> <C> <C> <C> <C> <C> <C> <C>
Income before income taxes $41,759 $55,156 $168,177 $170,227 $150,219 $134,124 $ 76,098
Fixed charges (see computation below) 11,219 10,230 42,326 34,785 43,028 48,779 47,575
------- ------- -------- -------- -------- -------- --------
Total Earnings Available for Fixed
Charges $52,978 $65,386 $210,503 $205,012 $193,247 $182,903 $123,673
======= ======= ======== ======== ======== ======== ========
Fixed Charges:
Interest expense before deducting
interest capitalized $10,628 $ 9,698 $ 40,369 $ 33,130 $ 41,147 $ 46,859 $ 45,900
Rentals(b) 591 532 1,957 1,655 1,881 1,920 1,675
------- ------- -------- -------- -------- -------- --------
$11,219 $10,230 $ 42,326 $ 34,785 $ 43,028 $ 48,779 $ 47,575
======= ======= ======== ======== ======== ======== ========
Ratio of Earnings to Fixed Charges 4.7 6.4 5.0 5.9 4.5 3.7 2.6
======= ======= ======== ======== ======== ======== ========
</TABLE>
- ----------------
(a) Amounts include the Company's portion of the captions as they relate to
persons accounted for by the equity method.
(b) These amounts represent 1/3 of rentals which approximate the interest
factor applicable to such rentals of the Company and its subsidiaries and
continuing unconsolidated affiliates.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 72
<SECURITIES> 0
<RECEIVABLES> 127,714
<ALLOWANCES> 0
<INVENTORY> 20,187
<CURRENT-ASSETS> 162,712
<PP&E> 2,691,286
<DEPRECIATION> 1,541,114
<TOTAL-ASSETS> 1,588,367
<CURRENT-LIABILITIES> 74,810
<BONDS> 500,000
0
0
<COMMON> 4
<OTHER-SE> 787,155
<TOTAL-LIABILITY-AND-EQUITY> 1,588,367
<SALES> 0
<TOTAL-REVENUES> 100,704
<CGS> 0
<TOTAL-COSTS> 19,533
<OTHER-EXPENSES> 13,998
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,589
<INCOME-PRETAX> 41,381
<INCOME-TAX> 15,967
<INCOME-CONTINUING> 25,414
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 25,414
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
